Excerpt: - .....of on one short point. in order to appreciate the point it would be necessary to set out the reasons recorded by the income-tax officers before the issue of the eight impugned notices. before i set out the recorded reasons i may mention that although the reasons for these eight years have been recorded by the two income-tax officers, viz., mr. d.l. brahamchari and mr. k. dasgupta, and although there are eight different reasons recorded for the respective assessment years, curiously enough the recorded reasons are word for word the same. this could obviously be the basis of an argument of non-application of mind by the concerned officers. dr. pal, however, invited me to decide this application on a different ground.3. one of the specific reasons for the assessment year 1960-61--and.....

Judgment:

T.K. Basu, J.

1. In this rule, the petitioner Ashoka Marketing Ltd., challenges eight notices issued under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The notices for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57 are all dated the 10th May, 1966. The notice for the assessment year 1957-58 is dated the 18th February, 1966. The notices for the assessment years 1958-59, 1959-60 and 1960-61 are all dated the 20th January, 1967.

2. Dr. Debi Pal, learned advocate, appearing on behalf of the petitioner submits that, although several grounds have been taken in the petition, this matter can be disposed of on one short point. In order to appreciate the point it would be necessary to set out the reasons recorded by the Income-tax Officers before the issue of the eight impugned notices. Before I set out the recorded reasons I may mention that although the reasons for these eight years have been recorded by the two Income-tax Officers, viz., Mr. D.L. Brahamchari and Mr. K. Dasgupta, and although there are eight different reasons recorded for the respective assessment years, curiously enough the recorded reasons are word for word the same. This could obviously be the basis of an argument of non-application of mind by the concerned officers. Dr. Pal, however, invited me to decide this application on a different ground.

3. One of the specific reasons for the assessment year 1960-61--and I have already said the recorded reasons ipsissima verba--may be set out hereinbelow :

'The assessee collected sales tax on cement sale to customers on the gross price by the State Trading Corporation, which included notional freight and other incidentals. The customers take delivery of cement on payment of actual freight charges directly to the Railways and the assessee-company, the selling agent of the State Trading Corporation, recovers from the customers only the balance, i.e., the difference between the gross price and the actual freight paid by the customers. The assessee paid to the State sales-tax authorities only the tax on this net amount recovered and thus every year accumulated the difference between sales tax on gross price collected from customers and sales tax on net price paid to sales tax authorities. Theaccumulation of such surplus, i.e., the sales tax on freight clement, amounted to about Rs. 44 lakhs as on 30-6-65.

This practice was adopted by the assessee oven prior to the incorporation of State Trading Corporation and it has so far succeeded in its dispute with the State sales tax authorities on this point that no sales tax is payable on this freight element. Nor has the assessee any intention to refund this amount to the customers. In view of the Supreme Court's decision in the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax : [1959]35ITR519(SC) , this surplus is assessable as a trading receipt because what the assessee was realising from the customers was the sale price (sales tax being a part of it and if a part of it was not paid to the sales tax authorities that amount must necessarily be regarded as trading receipt).

4. The exact amount accumulated in each year is not known as the books of accounts of the assessee have been seized by the Company Law Board and are now the subject-matter of an injunction from the Calcutta High Court, but the surplus each year is not likely to be less than Rs. 50,000.' Dr. Pal relied on the well-settled proposition that before an Income-tax Officer can issue a notice under Section 148 of the Act two essential preconditions must be satisfied. First, the Income-tax Officer must form the belief that income has escaped assessment or has been under-assessed at too low a rate. Second, he must form the further belief that such underassessment has been duo to an omission or failure on the part of the assessee to disclose fully and truly all material facts with regard to his income in the relevant year.

5. Or. Pal in this connection refers to an unreported decision of mine in the case of Ram Kumar Himatsingka v. Income-tax Officer (Matter No. 154 of 1967), which judgment was delivered by me on the 14th September, 1972. In that decision relying on the Supreme Court case of S. Narayanappa v. Commissioner of Income-lax : [1967]63ITR219(SC) , I upheld Dr. Pal's contention on a similar point. Reliance was also placed on an unreported judgment of P. K. Banerjee J. in the case of Khinguriram Mahabiram v. Income-tax Officer (Matter No. 752 of 1967) in which the judgment was delivered on the 3rd October, 1972. Banerjee J., on similar facts, came to an identical conclusion.

6. It is not necessary to elaborate on this aspect of the matter because the legal position was not seriously disputed by Mr. Balai Lal Pal learned advocate, appearing on behalf of the revenue. Mr. Pal, however, submitted that the recorded reasons should be read with entry No. 7 in the covering sheet which is as follows :

'Brief reasons for starting proceedings under Section 147 (indicate items which are believed to have escaped assessment): As per separate sheet.'

7. According to Mr. Pal, this amounted to fulfilment of the condition precedent as required by law before the issue of a notice under Section 148 of the Act.

8. I am unable to accept the contentions of Mr. Balai Lal Pal on this point. Entry No. 7 in the covering sheet of the recorded reasons in my view does not amount to a formation of belief that any income has escaped, assessment. Even assuming that by an over-generous interpretation in favour of the revenue, this entry may be construed to amount to the formation of a belief by the Income-tax Officer that income has escaped assessment, there is nothing in the recorded reasons to show that there was the formation of belief by the Income-tax Officer that such income escaped assessment by reason of any omission or failure on the part of the assessee to disclose fully and truly all relevant facts with regard to the particular year. The absence of this belief with regard to the omission or failure OH the part of the assessee, in my view, is a fatal infirmity of the impugned notices. Consequently, it must be held that the impugned notices having been issued without the condition precedent having been complied with they are without jurisdiction and void. This point of Dr. Pal, therefore, succeeds.

9. As I am disposing of this rule on this single point, I make it clear that I am not deciding any other question involved in this application.

10. In the result, this application succeeds and the rule is made absolute. There will be a writ in the nature of mandamus directing the respondent to forthwith recall, cancel and withdraw the impugned notices for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57, all dated the 10th May, 1966, the notice for the assessment year 1957-58, dated the 18th February, 1966, and for the assessment years 1958-59, 1959-60 and 1960-61, all dated the 20th January, 1967, and to forbear from giving effect thereto in any manner whatsoever.